Get Ahead of the Curve: Build a Strategic Budget That Drives Real Results

Budgeting is a component that all organizations cannot afford to avoid or ignore. Information collected to develop a reliable budget comes from various parts of an organization. Information from the human resources, operations, marketing, research and development (R&D), finance, and accounting management functions all play a part in the creation of a good, reliable budget.

At any rate, it is used as a tool to help in personal and business finance. Without this tool, unfounded estimations can be made. Establishing goals that are specific, measurable, assignable, realistic, and time-related (or SMART) to a cash budget can be performed which will allow decision makers to make better short-term and long-term financial and strategic decisions.

By generating more cash flow than it needs to pay bills and invest in new current and fixed assets, a firm creates value for shareholders or owner’s (Zutter, 2019, p. 156). So, if an organization can identify and invest in an optimal, sustainable amount in marketable securities that are equivalent to their fixed assets that are contribute to their core competencies they can potentially see benefits. Particular attention to planning for cash deficits and surpluses is given by financial managers and other decision makers. Which places a spotlight on the opportunity to also plan the budget to include a way to address fixed expenses. In fact, some may argue this is the better of the two between regarding the marketable securities approach. Either way, the fixed assets or fixed expenses concept, has the potential to improve working capital among other things. And the marketable securities concept can be applied in both personal and business finance.

The cash budget, or operating budget, is generally one year or less. Estimating total income and expenses for a full 12-month period may seem like a daunting task but favor leans to eliminating if not reducing waste. And waste includes time, not just money. Good financial decision-making warrants exploration of the12-month budget forecast approach for any organization or individual. Taking it further, preparation of 3-year cash budget plans is something to be achieved! In most organizations, it is required at the C-suite level. While it is not unheard of, it is an effective financial strategy that some organizations seek beyond the ‘six-months of emergency funds’ concept. Which may provide an individual or organization the financial stability and flexibility to make better decisions regarding the quality of their life or organization.

In summary, cash budgeting helps decision makers better manage their ability to satisfy their financial and strategic obligations. Some have heard six months of emergency is sufficient. But, as we know, times have changed. It may now be reasonable to begin retaining enough money to pay all expenses for one full year. Wise managers can agree budgeting can be challenging and even frustrating but having an effective solution that best fits the organization’s needs is tantamount! Create and execute a budgeting plan with SMART objectives that are aligned with the organization’s short- and long-term goals. This will bring benefit in the form of value or profit…or both!

References

Zutter, S. B. (2019). Principles of Managerial Finance, 15th edition. New York, NY: Pearson.

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Meet Nikia Smith, the Project Management Consultant driving success at Business and Wealth Generations. With over a decade of advisory expertise, Nikia orchestrates strategy and operations, spearheading growth and innovation. Beyond his professional endeavors, Nikia actively participates in his community, having served on the Board of Directors at the Project Management Institute Florida Suncoast Chapter in different roles for several years. Recognized for his contributions, he received the PMI Florida Suncoast Chapter Award in 2018 for significantly boosting membership and retention and was also selected to attend the 2019 PMI North America Leadership Institute Meeting in Philadelphia. Nikia holds a bachelor’s degree in management and organizational leadership with a focus on Project Management, alongside several business certificates from St. Petersburg College. He is also certified in CAPM and PMP by the prestigious Project Management Institute. For collaboration opportunities, reach out to Nikia at info@thebusinesswg.com.

Are credit cards a good thing? Or a bad thing??

Credit cards can be an effective financial tool to creating, building, and sustaining income and wealth. Of course, there are pros and cons to every financial opportunity but if an individual or organization can leverage their allotted credit limit that is suitable for their financial situation there can be an immediate increase of cash! Now, what is done with the increased amount of cash is another story.

General, more talked about, information is the known principle of keeping your spending rate less than 30% of credit limit per credit card.

Behind the Market. More than 30% pay down their credit card balances only to make charges soon after. This is a no-no. It is best if the individual or organization can pay off the credit card balance until they have saved, in cash, the exact amount of the possible credit limit.

With the Market. Using your personal credit card or your organization's credit card at the beginning of the billing cycle but paying less than 100% of the charged balance will allow increased use of cash. Financial diligence is needed to remain liquid and financially positioned to partially cover the billing cycle's charges.

Ahead of the Market. Paying off the entire credit card balance before the end of each billing cycle creates a good track record for you and tells creditors great things about your financial practices. You are able to pay what you borrow! Chances are when you need funds you will have immediate access to your credit limit and the credit limit (ceiling) may also be increased! It's a "win-win" situation. If/when your credit limit is increased, you will be able to increase your 30% credit spending rate for the particular credit card(s). This is a tough strategy but very much worth it. The last key piece is to replenish the credit limit amount or do not make any future charges until you have the equal amount of your credit limit in cash.

Having credit cards (or credit) is about having leverage. Increasing your savings accounts even by minimal amounts will help you "retain your earnings" while you leverage for a better financial position to make asset purchases, pay expenses, and invest.

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Meet Nikia Smith, the Project Management Consultant driving success at Business and Wealth Generations. With over a decade of advisory expertise, Nikia orchestrates strategy and operations, spearheading growth and innovation. Beyond his professional endeavors, Nikia actively participates in his community, having served on the Board of Directors at the Project Management Institute Florida Suncoast Chapter in different roles for several years. Recognized for his contributions, he received the PMI Florida Suncoast Chapter Award in 2018 for significantly boosting membership and retention and was also selected to attend the 2019 PMI North America Leadership Institute Meeting in Philadelphia. Nikia holds a bachelor’s degree in management and organizational leadership with a concentration in Project Management, alongside several business certificates from St. Petersburg College. He is also certified in CAPM and PMP by the prestigious Project Management Institute. For collaboration opportunities, reach out to Nikia at info@thebusinesswg.com.

Restructuring for a Better Financial Position?

Have you ever felt like when you take a step or put a foot forward, you move two or more steps backward? Most of us have experienced financial hardships a time or two in our lives or in our businesses. And we also all have experienced getting out of a financial rut, so to speak. But falling back into a financial hardship can be devastating, frustrating, and depressing. So, what can you do to help cut down on how many times these financial hardships occur?

There are a few financial concepts and principles that you can learn to help you professionally, as well as personally, as you restructure for a better financial position!

Credit Rating. Limiting your overall debt (risk) to less than 30% of your total assets will certainly give your credit score a boost. The further decrease in overall debt that an individual or organization goes, percentage-wise, the better. Increased investments in income-generating assets with higher returns than you or your organization's cost of capital will create long-term value, income, and a competitive advantage (professional or personal). If you can pay debt down to 20% or less, chances are you will enjoy favorable credit ratings and scores.

Return On Equity. Equity isn't just the stock market. Retained earnings is equity. So, an organization can increase their ROE by keeping their income (earnings) in the business from period-to-period. Whether it is on a week-to-week, month-to-month, year-to-year, etc. basis. Line-of-credit is considered equity too....until is used....then it becomes a liability (debt). However, maintaining and increasing equity can help an individual or organization improve their purchasing power. Some organizations use the strategy of building up there equity so it can be used to address any debt, minimizing the need to use cash-on-hand.

Little to No Debt. All debt is not bad debt. Good debt exists too. When a situation prevents an individual or organization from satisfying their debt obligations, then paying down debt with low principal amounts and/or high interest rates becomes an effective financial strategy. This approach can be applied to loans as well as credit cards. As mentioned earlier, credit card balances are a form of debt as the credit card holder is responsible to pay off their balance(s) from use of the line-of-credit. In some cases, good management that seeks low-interest rates and low principal debt can be just as good as no debt at all. Hence, good debt!

Increasing Income (Revenues). This can be TOUGH. While it is easy to say, it is a challenge in practice. Why? Because to increase income there are several things that could happen. An increase in sales (revenues) must occur. To increase sales, it is best if an organization has competence in their operations or their product/service offerings. Another tried and true method is cutting expenses. Cutting expenses leaves income on the table. These things can happen in sequence, simultaneously, or independently. Interest income derived from compounding interest is also another form of (increasing) income. Good savings account management habits allows from the accrual of compounding interest to contribute to higher savings amount which can be used or invested at any time.

Regular, consistent deposits. Weekly deposits will allow an organization to position themselves effectively with creditors. A general rule of thumb is to deposit at least twice per week. But, the more the merrier. In providing access to equity and debt capital, creditors love to see money being earned and deposited. For the performing organization, it shows commitment to increasing assets, which in turn, allows their retained earnings to increase on a stable or upwards trend. Withdrawals and increasing expenses, for sure, lets a creditor or investor see that the organization’s income is inconsistent, or their operations are not efficient. And, in their eyes in some cases, means financially unsustainable.

Making sure your financial position is a competitive advantage is critical to your professional and personal success! Be wise, be cautious, be intentional about repositioning or restructuring for a better financial position!

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Meet Nikia Smith, the Project Management Consultant driving success at Business and Wealth Generations. With over a decade of advisory expertise, Nikia orchestrates strategy and operations, spearheading growth and innovation. Beyond his professional endeavors, Nikia actively participates in his community, having served on the Board of Directors at the Project Management Institute Florida Suncoast Chapter in different roles for several years. Recognized for his contributions, he received the PMI Florida Suncoast Chapter Award in 2018 for significantly boosting membership and retention and was also selected to attend the 2019 PMI North America Leadership Institute Meeting in Philadelphia. Nikia holds a bachelor’s degree in management and organizational leadership with a concentration in Project Management, alongside several business certificates from St. Petersburg College. He is also certified in CAPM and PMP by the prestigious Project Management Institute. For collaboration opportunities, reach out to Nikia at info@thebusinesswg.com.